Automotive Quarterly M&A Newsletter Q3 2018 KeyAutomotive Takeaways Quarterly M&A Newsletter – Q3 2018 The interior design of vehicles – especially cockpits – is changing profoundly as an increasing number of technologies merges in the space behind the wheel. The cockpit is turning into a comfortably designed control and entertainment center as every major component including the steering wheel, instrument clusters, dashboard controls, seats, safety systems, and climate controls is reinvented by automakers. With these dramatic changes, many new and existing companies compete to re-design and benefit from the cockpit of the next generation of cars – the theme of our Q3 2018 Automotive Quarterly Newsletter. Technological Advancements and Automotive Megatrends are Redefining the Automotive Cockpit Autonomous driving features powered by connectivity “With the car becoming a connected mobile platform, and digitization are having a revolutionary impact on the drivers and passengers expect to access information automotive cockpit segment, offering many venues to or entertainment in their vehicles as they do with their both hardware and software providers to innovate and smartphones or tablets.” meet consumers’ changing demands Sachin Lawande, President and CEO of Visteon 2 Advancements in the cockpit can pose challenges for traditional suppliers as new suppliers enter the market, but there are significant opportunities across categories Page Changing design and material requirements are paving the way for interior component suppliers to collaborate with OEMs and consumer electronics companies to design futuristic integrated concepts and enhance the travel experience Valuation Observations and Sector Performance Global OEM multiples have increased over the At the end of Q3’18 the NA Auto Parts 6.7x -0.6x Q-o-Q previous quarter while multiples for suppliers average EV / LTM Manufacturers declined, further widening the valuation gap EBITDA multiples were: 8.7x Global OEMs 3 Page between the two groups +0.5x Q-o-Q Automotive M&A Activity Automotive supplier M&A activity witnessed a slight Q-o-Q decline(1). U.S.-based buyers drove the overall acquisition momentum, being involved in 31% of transactions during the quarter 4 Q3 2018 saw a number of deals in the auto interiors space. In one of the transactions, Asahi Kasei Corporation announced the acquisition of Sage Automotive Interiors, a U.S.-based developer and Page manufacturer of automotive interior fabrics, for $1,060 million KPMG Corporate Finance (1) In the global mid-market segment, KPMG was the #1 M&A advisor with the most transactions over the America’s M&A Transactions Consumer Discretionary last 5 years Advisory Services Firm of Deal of the Year (Over 5 Page the Year - 2018 $100 MM) 2017 (1)Refers to the global Corporate Finance practices of KPMG International's network of independent member firms Sources: Capital IQ, analyst reports, and other publicly available sources. Note: (1) Based on transaction records available in CapitalIQ. © 2018 KPMG Corporate Finance LLC, a Delaware limited liability company. Member FINRA and SIPC. KPMG Corporate Finance LLC is a subsidiary of KPMG LLP, a Delaware limited 1 liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. AUTOMOTIVE M&A NEWSLETTER – Q3 2018 Automotive Quarterly M&ACockpits Newsletter – Q3 2018 The industry’s move towards connected cars and assisted driving has turned the automotive cockpit into a new battleground for suppliers. There is now an increased focus on supplying both hardware and software that enables autonomous features and enhances the user experience. The next generation of vehicles is expected to be an extension of consumers’ digital lifestyles. As a result, the interior of an automobile is steadily evolving from a purely functional driver environment to a mobile living room integrating advanced functions, comfort, ergonomics, and safety features. Vehicle Cockpit Components Rear View Instrument Center Stack Steering Windshield Mirror Cluster 1980 - 1990 1990 - 2000 2000 and beyond . Analog Navigation System . Touchscreen CRT Displays . Precision GPS Navigation . Electronic Trip Computer . All-Electronic Speedometer . Night Vision Assistance Evolution of the . First LED Display . Color Head-Up Displays . Smartphone Integration Vehicle Cockpit . Rear View Electro-Chromic . Augmented Reality (AR) Mirrors . OLED displays . TFT (Thin Film Transistor) . Biometric Sensors Source: Frost & Sullivan. LCD Displays Digitization and Connectivity Defining Today’s Cockpits 2017 $16.1 $7.0 $6.1 $1.9 $0.7 $31.8 Global Cockpit Electronics 2022 $20.9 $10.9 $10.4 $4.6 $2.4 $49.2 Market Size Audio/Infotainment Instrument Clusters Displays Telematics HUD (In $ billion) Source: Visteon Corporation Presentation (January 2018). While it may take more than a decade until widespread availability of shared-mobility and fully autonomous vehicles, upcoming models are expected to feature increasingly high-tech cockpit and interior components. Infotainment Head-Up Displays (HUDs) Infotainment systems are acting as an interface between HUDs are becoming increasingly available in automobiles humans and the vehicle, and are becoming much more to enable the driver to intuitively access key information than an extension of the ubiquitous smartphone. either on a screen or directly on the windshield, without Consumers’ desire for feature rich systems, supported by changing direction of gaze. their use of IoT-enabled devices and digital voice GM introduced the first head-up display in the Oldsmobile assistants at home, have shifted the momentum from Cutlass Supreme in 1988, showing speed, tachometer, traditional audio to display audio allowing integration of and other basic readings. Today, more advanced HUDs phones with cars through smartphone mirroring solutions are being developed offering Human-Machine Interface such as Apple Car Play and Android Auto. solutions for autonomous driving. Medium Exterior Mirror vs. Exterior Camera Low High Instrument Clusters (IC) Side mirrors are set to be displaced by cameras which will Digital ICs loaded with rich Advanced Driving Assistance collect information on surrounding traffic and provide a Systems (ADAS) such as traffic jam assist, lane departure continuous feed on the interior display panels. Along with warning, and pedestrian detection are poised to supersede an increased field of view, this will also improve analog clusters in next-generation vehicles. Analog ICs aerodynamics and reduce noise. are expected to become obsolete by 2020. In the recently launched Audi E-Tron, the side view mirrors Johnson Controls has developed a multilayer instrument have been replaced with exterior cameras that stream cluster which uses the latest TFT technology and their feeds through the digital displays embedded on the generates a 3D interface. doors beneath the windows. © 2018 KPMG Corporate Finance LLC, a Delaware limited liability company. Member FINRA and SIPC. KPMG Corporate Finance LLC is a subsidiary of KPMG LLP, a Delaware limited 2 liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. AUTOMOTIVE M&A NEWSLETTER – Q3 2018 SelectedAutomotive Quarterly Public M&A NewsletterAutomotive – Q3 2018 OEM and Parts Manufacturers Selected Automotive Comps Valuation Multiples - Market Data LTM Financials Enterprise Value To: HQ Company Country Market Enterprise Cap Value Share % 52 Wk Revenue EBITDA LTM NTM NTM ($mm) ($mm)(1) Price (2) High Revenue Growth % (3) EBITDA (3) Revenue EBITDA (3) North American Auto Parts Manufacturers Aptiv PLC IE 22,212 25,566 83.90 79.9% 13,902 12.3% 16.1% 11.4x 1.71x 9.9x Magna International Inc. CA 17,847 22,151 52.49 77.9% 41,978 6.5% 10.3% 5.1x 0.53x 4.8x Lear Corporation US 9,499 10,423 145.00 70.3% 21,660 7.7% 10.5% 4.6x 0.47x 4.5x BorgWarner Inc. US 8,935 10,840 42.78 73.5% 10,481 7.9% 16.6% 6.2x 1.01x 6.1x Gentex Corporation US 5,771 5,326 21.46 84.5% 1,819 5.1% 34.3% 8.5x 2.72x 8.0x Nexteer Automotive Group Limited US 3,970 3,814 1.58 60.8% 3,951 3.3% 13.9% 7.0x 0.92x 5.6x Adient plc IE 3,670 7,085 39.31 45.5% 17,273 8.0% 5.3% 7.8x 0.40x 5.1x Linamar Corporation CA 3,009 4,677 46.04 73.9% 5,455 17.2% 15.6% 5.5x 0.76x 4.8x Delphi Technologies PLC GB 2,784 4,103 31.36 51.9% 5,022 3.9% 16.1% 5.1x 0.81x 5.1x Visteon Corporation US 2,728 2,681 92.90 66.1% 3,134 (0.6%) 9.1% 9.4x 0.85x 7.5x Dana Incorporated US 2,699 4,548 18.67 52.9% 7,860 12.2% 10.8% 5.3x 0.55x 4.5x Tenneco Inc. US 2,167 3,473 42.14 64.2% 9,776 7.2% 8.8% 4.0x 0.34x 3.8x Cooper-Standard Holdings Inc. US 2,138 2,485 119.98 81.7% 3,703 2.2% 12.2% 5.5x 0.67x 5.1x American Axle & Manufacturing US 1,948 5,503 17.44 86.0% 7,218 15.5% 16.9% 4.5x 0.77x 4.4x Gentherm Incorporated US 1,657 1,705 45.45 90.4% 1,019 8.3% 12.9% 13.0x 1.55x 10.4x Martinrea International Inc. CA 887 1,355 10.20 75.4% 2,739 (1.0%) 12.0% 4.1x 0.48x 3.8x Stoneridge, Inc. US 847 903 29.72 78.9% 858 5.8% 11.5% 9.1x 1.02x 8.0x Tower International, Inc. US 623 927 30.25 82.5% 2,120 9.3% 9.9% 4.4x 0.42x 4.0x North American Auto Parts Manufacturers Mean 72.0% 7.3% 13.5% 6.7x 0.89x 5.8x North American Auto Parts Manufacturers Median 74.6% 7.4% 12.1% 5.5x 0.77x 5.1x Global OEMs Toyota Motor Corporation JP 179,382 314,901 62.52 90.9% 267,905 1.2% 14.3% 8.2x 1.19x 10.2x Volkswagen AG DE 87,233 248,982 176.14 78.8% 273,842 3.7% 10.4% 8.8x 0.89x 6.2x Daimler AG DE 67,556 203,628 63.15 71.1% 192,597 1.9% 9.9% 10.6x 1.03x 9.2x BMW AG DE 58,649 156,652 90.16 80.0% 112,827 (2.1%) 13.5% 10.3x 1.37x 9.6x Honda Motor Co., Ltd.